Merger in pipeline for industrial investors

Shane Solly said the deal was not a big surprise. Photo / David White

PFI shareholders await PwC appraisal before voting on proposed Direct takeover.

A Property For Industry investor is waiting for more information on a proposal to almost double the size of the $382.2 million NZX-listed business.

Shane Solly of Mint Asset Management is keen to know more about Property for Industry's proposed move on the privately held Direct Property Fund before he made up his mind about backing it. Mint owns just under 5 per cent of PFI, which was yesterday trading at $1.37.

PFI, a specialist industrial landlord, has 50 properties valued at $382.2 million and Direct has 33 properties valued at $415 million.

PFI's most valuable asset is the $27.9 million 686 Rosebank Rd in Avondale, rented to New Zealand Comfort Group, Akzo Nobel Coatings, Universal Specialities, Roadshow Entertainment, AA Insurance, NZ Racing Laboratory Services and Multiflora Laboratories.

One of Direct's biggest revenue generators is the Carlaw Park commercial precinct in Parnell, rented to Carlaw Commercial, Department of Conservation, Dimension Data NZ, Lollipops Educare, New Zealand Institute of Chartered Accountants Ltd, Nestle NZ and Sinclair Knight Merz.

Peter Masfen, PFI chairman, yesterday told NZX of plans to merge the two businesses by July 1 but said a Deloitte independent expert report would first need to be issued around the end of this month, approval from both companies' shareholders was needed and a meeting is to be held for voting in late June.

PFI had appointed PwC to provide shareholders with an appraisal report on the fairness of a revised base fee structure to reflect the blending of the fees at PFI and Direct, Masfen said.

Direct shareholders will get 123.22 PFI shares for each Direct share.

Solly said the deal was not a big surprise because McDougall Reidy manages PFI and founded Direct but he wanted to know more about Direct's assets.

"This is not a total surprise but there's a lot of information we need, there's a lot of grey areas and independence issues. PFI has some good assets, it has done some good transactions lately and they've cleaned up their books and made investments that are strong so they're in a good place. But will this transaction be value-adding for PFI investors? Will it improve returns, reduce risk and enhance the longer term prospects of PFI?" Solly asked.

PFI has been trading at a significant premium of net tangible asset backing, he said. Direct earns $32.9 million rental annually from its properties, declaring its portfolio 100 per cent leased.

Greg Reidy, a director of both PFI and Direct said: "There's a lot of work ensuring there's a balance of benefits to both and both boards believe it's a good transaction that should be considered by shareholders."

The two boards have five independent directors. Direct has 500 shareholders.

Jeremy Simpson of Forsyth Barr has a hold recommendation on PFI, saying it had continued its strong track record of reliable and steady performance underpinned by a clear and low-risk strategic direction.

"PFI's portfolio is diversified across major industrial precincts in Auckland. It has defensive qualities and its relatively new management team are generating a positive track record in the listed market for recycling assets and managing the portfolio," he said.

Two to become one?

Direct Property Fund
*Unlisted real estate investor
*Pays dividends every quarter
*33 properties worth $415m
*Commercial/industrial investor
*Owned by 500 shareholders, founded by McDougall Reidy
*Offices at Shed 24, Princes Wharf, 147 Quay St, Auckland.

Property For Industry
*Listed on sharemarket in 1994
*50 industrial properties worth $382.2m
*Aims to pay out all cash operating earnings
*Makes payments as dividends every quarter
*Managed by PFIM, majority owned by McDougall Reidy

[Sources: Direct Property Fund, Property For Industry]